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Friday, September 19, 2014

Scottish "No" Vote Pushes S&P To New Record High

So much for any Scottish referendum vote "surprise": the people came, they voted, and they decided to stay in the 307-year-old union by a far wider margin, some 55% to 45%, than most polls had forecast, even as 3.6 million votes, a record 85% turnout, expressed their opinion. The gloating began shortly thereafter, first and foremost by David Cameron who said "There can be no disputes, no re-runs, we have heard the settled will of the Scottish people." Queen Elizabeth II, who is at her Scottish castle in Balmoral, is expected to make a rare comment on Friday.

The loser was graceful: speaking in front of an image of a giant white on blue Scottish flag, nationalist leader Alex Salmond conceded defeat in Edinburgh. Salmond laced his admission of defeat with a warning to British politicians in London that they must respect their last minute promise of more powers for Scotland. "Scotland has by a majority decided not, at this stage, to become an independent country. I accept that verdict of the people and I call on all of Scotland to follow suit in accepting the democratic verdict of the people of Scotland," Salmond said.

Despite its loss, the Yes movement will be seen as a victory for the Scots. From Reuters:

Opinion polls showing a surge in Scottish separatist support in the two weeks leading up to the Sept. 18 vote prompted a rushed British pledge to grant more powers to Scotland, a step that has angered some English lawmakers in Westminster.

In an effort to deflate that anger, Cameron vowed to forge a new constitutional settlement that would grant Scotland the promised powers but also give greater control to England, Wales and Northern Ireland.

"Just as Scotland will vote separately in the Scottish parliament on their issues of tax, spending and welfare, so too England, as well as Wales and Northern Ireland should be able to vote on these issues," Cameron said.

"All this must take place, in tandem with and at the same pace as the settlement for Scotland."

Cast as a constitutional revolution, commentators said Cameron's pledge of more powers to the constituent parts of the United Kingdom was aimed at sedating 'the slumbering beast of English nationalism'.

Still, tonight's referendum is hardly the end of the question of Scottish independence:

While Scottish leaders promised to work together, Scots remained divided in joy and disappointment over the fate of their country. "Absolutely amazing," said unionist campaigner Stephen Stanners. "They shouted the loudest, so it made it seem like a majority. But we’re obviously the silent dignified majority. And we pushed it through. And it just shows that Scotland loves the UK and the UK loves Scotland."

But Calum Martin, a 21 year-old history student at Edinburgh University who voted for independence said the question of secession would return. "It’s a disappointing result but it sets the stage for going forward," Martin said. "As long as there are flaws, there will be calls for independence. You can’t put the genie back in the bottle once it’s out."

But while a No vote was where the smart betting money was ahead of the vote anyway, and is thus hardly a surprise, the most curious thing overnight was the complete roundtrip of cable, which was bought on the rumor and then sold off on the news, roundtripping by nearly 200 pips:

Perhaps even more surprising was the roundtrip in the USDJPY which also, like cable soared on the BOJ reduction in its assessment of the Japanese economy, only to retrace all gains.

In fact, the only thing that has not roundtripped are US equity futures, which however will be driven far more by the imminent break for trading of what several days ago we we dubbed the most important event of the week, far more relevant to "markets" than the Fed or the Scottish vote - the $168 billion BABA IPO, expected some time around 11 am, or possibly earlier if the underwriters want to start spending their commission early ahead of the weekend.

Finally, it is quad witching day, so watch those option pins. With volume already abysmally low, it literally takes oddlots to move the E-mini.

In summary, European shares rise, though are off earlier highs, with the real estate and telco sectors outperforming and tech, basic resources underperforming. Scotland rejected independence in referendum. The Spanish and German markets are the best-performing larger bourses, French the worst. The euro is weaker against the dollar. Spanish 10yr bond yields fall; Irish yields decline. Commodities little changed, with wheat, soybeans underperforming and Brent crude outperforming. U.S. leading index due later.